Share options and warrants

Alternative forms of pay increase

Share options and warrants

Alternative forms of pay increase

Looking for a way to reward enthusiastic employees? If you decide
to increase their salary, your staff will retain only a limited net
amount after tax. Fortunately, there are tax-friendly alternatives,
such as share options or warrants.

What is a share option plan?

A share option gives the holder a right to buy a share at a set price
for a certain period. If the share increases in value, the
option-holder realises a gain. However, there may be various
objections to setting up such a plan for shares in your own company:
dilution of the shareholder structure and complexity of the accounting
treatment are just two of them.

The solution

The law allows a share option plan to be started for shares other
than those in your own company. That’s why KBC has developed share
options for open ended investment companies (BEVEKS) linked to the
surrounding economies. Options for shares in these BEVEKS can also be
offered as an additional incentive.

The advantages

Better risk diversification

No dilution of the
shareholder structure

How does it work?

Your company buys share options from the bank and passes them to your
employees. These options are by definition unlisted, and can be
bought and sold during the term of the plan. The purchase price
of the share options is deductible from your corporation tax
liability. Moreover, your company enjoys a high degree of freedom
to give the options to whoever you choose; all the law requires is
that there is a link to the recipient’s professional activity. Options
must always be accepted in writing within 60 days of receiving them.

Tax

The tax payable on the share must be paid on the 60th day
after the offer, even if the option is not exercised or sold later.
The advantage is that the tax is estimated as a percentage of the
value of the underlying share on the launch date. One of the
conditions for receiving this advantage is that the option is blocked
for one year so that it actually undergoes risk. Moreover, employees
are exempt from social security contributions on the share option.

The warrant plan, if you want to time-limit the stock market risk

As well as the option plan, the warrant plan is also an alternative
to paying extra salary. The difference is that warrants are listed
and can be sold after just a few days, unlike the share options
in the option plan. As there is no mandatory lock-up period of one
year, the stock market risk is limited. On the other hand,
income tax is payable on the full value of the warrants, though
employees do retain the exemption to social security contributions.

If your interest in option plans or warrants has been aroused,
contact your KBC relationship manager.Together with the EBE adviser,
he or she will give you good advice, tailored to your company.

A question? Contact us

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